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essentials of economics

Essentials Of Economics 4th Edition R Glenn Hubbard, Anne M Garnett, Philip Lewis, Anthony O Brien - Solutions

Suppose the federal government increases spending without also increasing taxes. In the short run, how will this action affect real GDP and the price level in a closed economy? How will the effects
Suppose that interest rates in Australia rise relative to those in other countries. a How will this policy affect real GDP in the short run if Australia is a closed economy? b How will this policy
An article in The Economist magazine described Ireland as ‘an extraordinarily open economy’ (The Economist, 2011).5 Is fiscal policy in Ireland likely to be more or less effective than it would
Why does fiscal policy have a smaller effect on aggregate demand in an open economy than in a closed economy? PROBLEMS AND APPLICATIONS
Why does monetary policy have a greater effect on aggregate demand in an open economy than in a closed economy?
Australia’s net foreign debt has been rising as a proportion of GDP over time. What are the potential advantages and disadvantages of rising foreign debt for Australia? Would your analysis of
In 2010, China introduced some further flexibility into its exchange rate determination and allowed the value of the yuan to appreciate somewhat. According to a news article at the time: Economists
An investment analyst recommended that investors ‘gravitate toward the stronger currencies and countries that are running current-account and fiscal surpluses’, such as South Korea and Taiwan
If investment spending in Australia has been strong, why would this reduce apprehension about the size of the current account deficit? What does the current account deficit have to do with investment
What factors should be considered when determining whether or not foreign debt is a problem for a country? Do you think Australia’s foreign debt is a problem?
What is the twin deficits hypothesis?
What happens to national saving when the government runs a budget surplus?
Suppose a politician proposes that tariffs be imposed on imports from countries with which Australia has a trade deficit. If this proposal were enacted and if it were to succeed in reducing
Use the saving and investment equation to explain why Australia experienced large current account deficits in the mid-2000s.
Look again at how we arrived at the equation S = I + NX + NPY. Suppose that we define national income as being equal to Y + TR, where TR equals government transfer payments, and we define government
Briefly explain whether you agree with the following statement: ‘Because in 2016 national saving was a smaller percentage of GDP in the United Kingdom than in Australia, domestic investment must
In 2015, France’s net foreign investment was negative. Which was larger in France in 2015: national saving or domestic investment? Briefly explain.
In 2014, domestic investment in Japan was 21.7 per cent of GDP, and Japanese national saving was 22.4 per cent of GDP. What percentage of GDP was Japanese net foreign investment?
If a country saves more than it invests domestically, what must be true of its net foreign investment?
What is the saving and investment equation? If national saving declines, what will happen to domestic investment and net foreign investment?
Explain the relationship between the current account deficit and net foreign investment.
[Related to Making the connection 20.3] An economist in Spain noted that the Spanish economy was in recession during the early 1990s, but that ‘in 1992 and 1993 a series of [exchange rate]
[Related to Making the connection 20.3] The United Kingdom decided not to join other European Union countries in using the euro as its currency. Opponents of adopting the euro argued that it is not
[Related to Making the connection 20.2] Assume that the Big Mac is selling for $5.04 in the United States. Calculate the implied exchange rate between each of the currencies in the following table
According to the theory of purchasing power parity, if the inflation rate in Australia is higher than the inflation rate in New Zealand, what should happen to the exchange rate between the Australian
The Australian dollar appreciated significantly against the US dollar and some other currencies between 2010 and early 2012 and remained relatively strong for some years after. Discuss which
Following the floating of the Australian dollar in 1983, the trade-weighted index of the Australian dollar fell substantially. Does this indicate that the Australian dollar was overvalued or
Consider the following: An Australian manufacturing representative said that weak currencies overseas, particularly in Europe and Asia, had dragged down its sales 2 per cent worldwide, ultimately
Why did many European countries agree to replace their previous currency with the euro?
Briefly describe the four determinants of exchange rates in the long run.
What is the theory of purchasing power parity? Does it give a complete explanation for movements in exchange rates in the long run? Briefly explain.
After World War II, why might countries have preferred the Bretton Woods System to re-establishing the gold standard? In your answer, be sure to note the important ways in which the Bretton Woods
If a country is using the gold standard, what is likely to happen to the country’s money supply if new gold deposits are discovered in the country? Is this change in the money supply desirable?
Australia and most other countries abandoned the gold standard during the 1930s. Why would the 1930s have been a particularly difficult time for countries to have remained on the gold standard?
Briefly explain whether you agree with the following statement: ‘The RBA is limited in its ability to issue paper currency by the amount of gold reserves it holds. To issue more paper currency, the
What does it mean when one currency is ‘pegged’ against another currency?
What is the difference between a fixed exchange rate system and a managed float exchange rate system?
In 2010, when the Australian dollar hit US$1.00, and exceeded this in 2011 and 2012, manufacturers, farmers, tourist operators and educational institutions expressed the view that if the exchange
[Related to Solved problem 20.2] When a country’s currency appreciates, is this generally good news or bad news for the country’s consumers? Is it generally good news or bad news for the
Use the graph to answer the following questions.a Briefly explain whether the dollar appreciated or depreciated against the yen. b Which of the following events could have caused the shift in demand
Some exporting firms have argued that the Chinese government has been keeping the value of the Chinese yuan artificially low against other currencies, which gives Chinese exporters an advantage when
Graph the demand for and supply of Australian dollars for euros and label each axis. Show graphically and explain the effect of an increase in Australian government budget deficits that increase
Graph the demand for and supply of Australian dollars for euros and label each axis. Show graphically and explain the effect of an increase in interest rates in Europe by the European Central Bank
[Related to Don’t let this happen to you on page 678] If we know the exchange rate between country A’s currency and country B’s currency, and we know the exchange rate between country B’s
What are the three main sets of factors that cause the supply and demand curves in the foreign exchange market to shift? PROBLEMS AND APPLICATIONS
Why do foreign households and foreign firms demand Australian dollars in exchange for foreign currency? Why do Australian households and firms supply Australian dollars in exchange for foreign
Suppose that the current exchange rate between the Australian dollar and the euro is 0.6 euros per dollar. If the exchange rate changes to 0.8 euros per dollar, did the euro appreciate or depreciate
If the exchange rate between the Japanese yen and the Australian dollar expressed in terms of yen per dollar is ¥110 = $1, what is the exchange rate when expressed in terms of dollars per yen?
A news article refers to ‘debt-strapped emerging markets already struggling with current-account deficits’ (Trivedi, 2015).1 Why might we expect that countries running current account deficits
According to this chapter, the Australian trade deficit is almost always smaller than the Australian current account deficit. Why is this true?
[Related to Solved problem 20.1] Australia runs a current account deficit every year. What must be true about Australia’s financial account balance?
[Related to Solved problem 20.1] Suppose we know that a country has been receiving large inflows of foreign investment. What can we say about its current account balance?
[Related to Solved problem 20.1] Is it possible for a country to run a trade deficit and a financial account deficit simultaneously? Briefly explain.
[Related to Don’t let this happen to you, on page 675] In 2014, Germany had a surplus in the balance of trade in goods and services of 217 billion euros. Which was larger in that year: Germany’s
Use the information in the following table to prepare a balance of payments account like the one shown in Table 20.1. Assume the balance on the capital account is zero. All values are in billions of
In 2014, France had a current account deficit of close to 19.5 billion euros. Did France experience a net capital outflow or a net capital inflow in 2014? Briefly explain.
Explain whether you agree or disagree with the following statement: ‘Australia has run a balance of payments deficit every year since 1974.
What is the difference between net exports and the current account balance?
What is the relationship between the current account, the capital account, the financial account and the balance of payments?
A common argument against free trade is that it causes a loss of domestic production and jobs. If a country engages in free trade, is the total number of jobs in the country likely to decline?
Suppose you are explaining the benefits of free trade and someone states, ‘I don’t understand all the principles of comparative advantage and gains from trade. I just know that if I buy something
During the Global Financial Crisis of 2007–2008, the US government included a ‘Buy American’ condition as part of its stimulus package to US firms, requiring firms to purchase production inputs
Some politicians have suggested that the WTO work towards making certain labour standards part of every trade agreement, with sanctions imposed on countries that do not meet these labour standards.
What is protectionism? Who benefits and who loses from protectionist policies? What are the main arguments people use to justify protectionism?
What is globalisation? Why are some people opposed to globalisation?
What is the purpose of the World Trade Organization, and has it achieved its goals?
[Related to Solved problem 19.2] Australia currently grows cherries and imports them. Assume that the Australian government decides to restrict international trade in cherries by imposing a quota
Do you think many Australians associate free trade with job losses rather than opportunities and a higher standard of living?
A student makes the following argument: ‘Tariffs on imports of foreign goods into Australia will cause the foreign companies to add the amount of the tariff to the prices they charge Australians
The United States has about 9000 rice farmers and these farmers receive subsidy payments from the US government of around US$90 000 per farmer. These payments result in US farmers producing much more
Australia produces oranges and also imports oranges from other countries. a Draw a graph showing the supply and demand for oranges in Australia. Assume that Australia can import as much as it wants
A commentator claimed that the case for free international trade was only relevant if all countries adopted free trade. Do you agree that a country benefits from free trade only if every other
The European Union is an organisation of many European countries. Almost 40 per cent of the entire EU budget (around 50 billion euros) consists of protection and subsidies to EU farmers. These
[Related to the opening case] Which industries have been affected unfavourably by the tariff on imported motor vehicles in Australia?
Who gains and who loses when a country imposes a tariff or a quota on imports of a good?
What is a tariff? What is a quota? Give an example of a non-tariff barrier to trade.
Explain why there are advantages to a movie studio operating on the Gold Coast, Queensland, rather than in, say, Hobart, Tasmania.
[Related to Don’t let this happen to you] Explain whether you agree or disagree with the following statement: ‘I can’t believe that anyone opposes expanding international trade. After all, when
Is free trade likely to benefit a large populous country more than a small country with fewer people? Briefly explain.
Briefly explain whether you agree or disagree with the following statement: ‘Most countries exhaust their comparative advantage in producing a good or service before they reach complete
[Related to Solved problem 19.1] A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich
[Related to Solved problem 19.1] The following table shows the hourly output per worker in two industries in Chile and Argentina. a Explain which country has an absolute advantage in the production
Does everyone gain from international trade? If not, explain which groups lose.
What are the main sources of comparative advantage?
What is meant by a country specialising in the production of a good? Is it typical for countries to be completely specialised? Briefly explain.
Briefly explain how international trade increases a country’s consumption.
Using the numbers in the following table, explain which country has a comparative advantage in producing smartwatches. OUTPUT PER HOUR OF WORK SMARTWATCHES FITNESS TRACKERS Switzerland Canada 8 5 10 3
The following table shows the hourly output per worker for Greece and Italy measured as quarts of olive oil and pounds of pasta.Calculate the opportunity cost of producing olive oil and pasta in both
Briefly explain whether you agree with the following argument: ‘Unfortunately, Bolivia does not have a comparative advantage with respect to Australia in the production of any good or service.’
Suppose, on average, workers in the Chinese consumer white goods industry produce less output per hour than Australian workers producing the same goods. Despite this fact, China exports large
Why do the goods that countries import and export change over time? Use the concept of comparative advantage in your answer.
What makes the theory of comparative advantage such a powerful insight in economics?
What is the difference between absolute advantage and comparative advantage? Will a country always be an exporter of a good in which it has an absolute advantage in production?
Why might a smaller country, such as Singapore, be more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States?
Briefly explain whether you agree with the following statement: ‘Japan has always been much more heavily involved in international trade than most other nations. In fact, today Japan exports a
Briefly explain whether you agree or disagree with the following statement: ‘International trade is more important to the Australian economy than to most other economies.’5If Australia were to
Are imports and exports a smaller or larger fraction of Australia’s GDP than they were 50 years ago?
Briefly explain whether the value of Australian exports is typically larger or smaller than the value of Australian imports.
In macroeconomics in the 1960s and early 1970s, it was often taught that an economy could have higher unemployment in order to achieve lower inflation, or that higher inflation may be the result of
Briefly explain whether you agree with the following statement: ‘Any economic relationship that changes as economic policy changes is not a structural relationship.’

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